Carmakers call for special deal to avoid Brexit 'cliff edge'

The UK automotive industry needs a special interim agreement with the EU to avoid “the worst foreseeable outcome”.

The Society of Motor Manufacturers and Traders [SMMT] has called on the government to seek an interim trade deal just for its sector that would give the industry access to the customs union and single market beyond the official cut-off point for negotiations in 2019.

Mike Hawes, SMMT chief executive said: “Our biggest fear is that in two years’ time we fall off a cliff edge; no deal, outside the single market and customs union and trading on inferior WTO terms.”

The EU is the UK’s largest automotive export market and its supply chain is highly integrated with Europe, with some components crossing the channel multiple times before a vehicle is finished.

SMMT said it accepted the UK’s decision to leave the EU and was in favour of a new relationship between the two parties, but it did not think that such a deal would be achievable within the deadline set by EU rules. Without an interim agreement the industry would face the sudden imposition of WTO tariffs of 10%. This would be “the worst foreseeable outcome for the sector, its employees and the British economy”, it said.

Speaking to BBC Radio 4, Hawes said it could be five years before the UK and EU had agreed a new trading deal.

Under the EU membership treaty exit talks are limited to two years from the triggering of Article 50, which prime minister Theresa May did in March, unless the remaining members unanimously vote to have it extended.

Simultaneously SMMT announced statistics showing the industry in the UK achieved record turnover of £77.5bn in 2016, a 9% increase on 2015. Vehicle production also rose 8.9%, and worker productivity increased to a record high of 11.8 vehicles per employee.

“For UK auto manufacturing to continue to thrive, we need clarity on the future, post Brexit, to encourage ongoing investment and growth,” said Hawes.

Olivia Xu, a consultant at Crimson & Co, said the industry could minimise its risk by localising its supply chains. “Each new country your supply chain sources from expands the likelihood that geopolitical issues could affect your production, something we are seeing a lot of in the current political climate,” she said. Localising supply chains can also increases flexibility and the potential to innovate she added.

Statistics released today by the Automotive Council showed the UK automotive sector is already increasing its local sourcing. The proportion of locally sourced parts reached to 44% in 2017, up from 36% in 2011.